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Wednesday, 6 Aug 2008
Falling Oil Prices Support the USD.
The dollar strengthened against all of the majors as it traded at a 7 week high during yesterday's trading session and continues its romp this morning.The Crude Oil inventories indicator has grown in significance in recent months, as the fluctuations in Oil prices have become one of the most important market movers.
USD - Crude Oil Inventories On Tap.
The dollar strengthened against all of the majors as it traded at a 7 week high during yesterday's trading session and continues its romp this morning. The USD gained over 100 points against the Euro to close below 1.55. More importantly for the dollar was the direct relationship between US fundamental data and the bullish momentum. Another day of 'positive' US news strengthened investor confidence in the Greenback and could continue to be the catalyst for more appreciation. The ISM Non-Manufacturing Composite index came in at 49.5, higher than expectations and 1.3 points higher then previously published. While the manufacturing index is on the rise it has yet to eclipse a mark of 50, which would indicate expansion in the sector. Still though, such a significant numerical rise was enough to spark market confidence in the rising dollar and hint that nationwide economic expansion in 2008 is still feasible. Also released yesterday was the Federal Fund Rate which stayed put as projected at 2.00%. While this had little effect on the market, the accompanying statement from the Federal Open Market Committee sparked more bullishness in the dollar. The FOMC Statement stated in part that the Federal Reserve's estimation of inflation will continue to depreciate into next year, hopefully giving some closure to market woes in the US. With the new findings being added to the current stock market rally in America, currently at its highest mark since April, and the shocking drop in Crude Oil prices, the USD looks to have once again escaped some disastrous circumstances.
On tap for today only one indicator will be released from the US event calendar. Crude Oil Inventories are expected to rise from -0.1M to 0.1M. The inventories indicator has grown in significance in recent months, as the fluctuations in Oil prices have become one of the most important market movers. Forex traders are advised to follow crude oil prices and equity market movements before placing their transactions.
EUR - Growing Positivity From the US Markets Causes EUR to Loose Ground.
The Euro finished yesterday's trading session with mixed results versus its major currency rivals. Euro-Zone fundamental data continues to disappoint investors, despite the obvious strength the Euro still holds over other world currencies. There is little question that the outlook of Euro-Zone economy has faltered recently, and coupled with the lack of significant intervention from the European Central Bank, the Euro's biggest rival, the dollar, has made a bullish run yet again. Also adding to Euro problems is the near 100% correlation between EUR/USD bearishness and Crude Oil. The unprecedented drop in Crude Oil prices, nearly 30 dollars in over 3 weeks, has pushed the Euro down, regardless of home data.
Yesterday, the Euro-Zone produced another day of poor data as Services PMI was unchanged from its 5 year low at 48.3 and Retail Sales lost 0.6% form last months revised rise of 0.5%. With growing positivity from the US economy the Euro was unable to hold steady against the greenback as it lost ground for yet another day.
Today only one indicator will be released from the Euro-Zone economy. The German Factory Orders indicator is predicted to rise from by 0.4%, a 1.5% difference in change from last months near 1% drop. This indicator measures the value of new purchase orders placed with domestic manufacturers for durable and non-durable goods and is an accurate pre-cursor for overall European movement. Still annual rates are expected to drop by just under 5% and will likely be drowned out by today's European market response to yesterdays FOMC statement.
Investors could see some recovery today from the Euro as many feel that yesterday's lack of real purposeful change from the Federal Reserve will rollback some dollar profits.
JPY - Core Machinery Orders on Tap.
The Yen completed yesterday's trading session with a batch of mixed results within its pairs and crosses. The JPY opened at 107.80 v. the USD then devalued 53 points before closing the day at 108.33. This fluctuating movement was similar to most of the JPY's crosses as well. Yesterday, Japan was absent from the economic calendar as no indicators were not published. Most of the bearish JPY movement from yesterday, most notably against the greenback came from another day of rising trends in US equity markets.
Today, two indicators are forecasted to be released from the Asian powerhouse. The Leading Economic Index is derived from many sectors such as employment, production, and consumer confidence and is projected to come in at 90.8%, lower than previously recorded. Also on tap we can expect Core Machinery Orders, which is expected to drop just under 10% from last month, indicating to investors that the manufacturing industry is in a contraction phase.
Forex traders could be in store for another day of JPY volatility as equity markets look to respond to lingering effects of yesterday's FOMC statements and today's energy price movements and inventories.
Crude Oil - Crude Oil Experienced Another Day of Steady Depreciation.
Crude Oil prices experienced another day of steady depreciation as the oft-traded commodity dropped below $120 for the first time since May. Oil prices traded at just above $118 per barrel as it traded down for the third straight day, continuing a nearly 1 month long drop in overall energy prices. Much of the bearish movement in Crude Oil can be attributed to fears in a drop of fuel consumption due to poor economic outlook in the major economies of the world. With economic growth slowing in the US and Europe, and another month of falling service industry numbers, Crude Oil dropped yesterday by over $2 a barrel. After major oil-production locations along the Texan coast and the Gulf of Mexico were missed by tropical storm Edouard yesterday, the price of Light Sweet Crude continued to drop.
Looking ahead to today, one of the more influential pieces of economic data will be Crude Oil Inventories for the United States of America. The inventories index has become more and more relevant over the last few months as the movement of Oil prices has become a major market mover. Expectations show a 0.1M rise in Crude inventories, up from last month's drop of 0.1M. Expect market wide volatility in and around the 2:35 GMT release of inventories as Oil continues to show signs of depreciation.
The pair is in the middle of a very intensive downtrend that still shows great momentum and on a bigger scale appears to have more room to run. In the shorter time frame a bullish cross on the 4 hour indicates that there might be a small correction before the bearish move resumes. Selling on highs appears to be preferable today.
The cable has breached the key Fibonacci level of 1.9550, and the break has been validated by a full bar beneath that level on the 4 hour chart. The negative slope on the daily slow stochastic strengthens the notion that the momentum is quite bearish. Going short might be wise today.
The pair has been range trading with high volatility for a while now, and it appears that the bearish price movement might be back. The Slow Stochastic and the RSI of the hourly chart are indicating an upcoming test of the 107.80 level. If that level is breached, swinging in the trend would be the best strategy.
The daily chart is showing that the pair is still in the bullish configuration; however the RSI is already floating in the overbought territory. On the contrary, the hourly's and the 4 hour chart's Slow Stochastic is showing a bearish cross. It appears that the possible next move might be a bearish one. In that case traders are advised to swing in after the break.
The Wild Card
There is still a bearish configuration on the 4 Hour and daily charts, indicating that the momentum is still down. The charts indicate that within this downward trend we should see a local correction before the downward momentum takes over again. Therefore forex traders can maximize gains by entering a stable short position after the local correction has taken place.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-1.2%|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-3.0B|
|09:00||CHF||Foreign Currency Reserves||540B||-||542B|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||0.4%||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||2.2M||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||54%||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||3.3%||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|07:00||JPY||Economy Watchers Sentiment||49.3||48.6||-|